First Wind IPO to raise up to $450M

First Wind Holdings Inc. filed preliminary papers July 31, 2008 with the Securities and Exchange Commission (SEC) in preparation for an initial public offering (IPO) of up to $450 million in stock. It becomes, to this blogger’s knowledge, the second major U.S. wind developer to file such papers, after Noble Environmental Power filed preliminary IPO papers in May 2008.

In the First Wind SEC filing, the company indicates that

We are a leading independent North American wind energy company focused exclusively on the development, ownership and operation of wind energy projects. As of June 30, 2008, our portfolio of wind energy projects included approximately 5,564 megawatts (“MW”) of capacity, of which 92 MW were operating and 182 MW were under construction. We expect to start construction on a 203 MW project in 2008 and, as a result, to be simultaneously constructing three wind energy projects representing 385 MW of capacity. Our goal is to have approximately 1,100 MW of operating capacity by the end of 2010 and we target the construction and commissioning of approximately 400 MW annually thereafter to achieve approximately 2,300 MW of operating capacity by the end of 2013. We have entered into purchase contracts for turbines with an aggregate generating capacity in excess of 1,300 MW, which are scheduled to be delivered or commissioned between 2008 and 2013. We expect this supply will be sufficient to meet all of our anticipated turbine needs in 2008 and 2009 and approximately 80% of our anticipated turbine needs in 2010. Our ability to complete the projects in our development pipeline and achieve our targeted capacity is subject to a number of risks and uncertainties as described in the “Risk Factors” section of this prospectus.

The company indicates that it has some 117 megawatts at the intermediate stage in its portfolio from New York (to be operational in 2010-11) and that

In January 2008, we executed an agreement for an additional $208.0 million tax equity financing related to a portfolio of our New York projects.

The projects are Steel Winds I, Cohocton I and Prattsburgh I. The company cautions, however, that

we recently were served with a civil subpoena by the New York Attorney General relating to an investigation of our activities in the State of New York. The costs related to this investigation, as well as our own internal investigation, could be significant. The investigations being conducted by the New York Attorney General and our outside counsel are at an early stage. Therefore, we are unable to anticipate when these investigations may conclude, or what impact the New York Attorney General’s investigation may have on current or future development plans, although a material adverse result is possible.

Elaborating later in the document, First Wind notes that

On July 15, 2008, we were served with a civil subpoena by the New York State Attorney General relating to an investigation into our activities in the State of New York. The subpoena we received contains broad requests for documents and information relating to: (i) whether we improperly sought or obtained land-use agreements with citizens and public officials, (ii) whether improper benefits were given to public officials to influence their actions and (iii) whether we and our competitors entered into anti-competitive agreements or practices.

We intend to fully cooperate with the requests of the New York State Attorney General and towards this end, we have engaged outside counsel to assist us in connection with this matter and to conduct our own internal investigation. The costs incurred in connection with these investigations to date have not been material, but the costs related to these investigations, including our own internal investigation, could be significant. The investigations being conducted by the New York Attorney General and our outside counsel are at an early stage. Therefore, we are unable to anticipate when these investigations may conclude, or what impact the New York Attorney General’s investigation may have on current or future development plans, although a material adverse result is possible.

Noble Environmental Power, the other potential wind IPO company, is similarly being investigated by New York’s Attorney General.

Quite active in New York (gotta love those high retail electricity rates) and the Northeast, First Wind indicates that

[it] believe[s] the Northeast is one of the most attractive wind energy markets in the continental U.S. due to the region’s high electricity prices and decreasing energy reserve margins, as well as the region’s limited utility-scale development opportunities and transmission limitations that constrain future increases of capacity in the region. In this region, FERC has approved ISOs in New York (“NYISO”) and New England (“ISO-NE”) to administer wholesale electric energy markets in their respective regions. The ISOs also control access to and the operation of the transmission grid used for wholesale power sales within their respective regions. In addition, capacity markets have developed in the region to promote the development and continued operation of capacity sufficient to meet regional load and reserve requirements. These markets have been established to ensure that generators receive capacity payments based on their availability to generate electricity.

The company offers the following information about its New York operating and under construction wind farms:

Steel Winds I

Steel Winds I is a 20 MW operating wind energy project situated approximately 150 feet from the shores of Lake Erie on a portion of a 1,600 acre site on Lake Erie in Lackawanna, New York. The larger site on which the project is located was formerly operated as a steel mill. We lease the site from a party that is subject to significant environmental remediation requirements as a result of the historic steel mill operations on the project’s site, as more fully described below in “Other.” We completed this project in June 2007. During the first year of commercial operations, Steel Winds I experienced technical difficulties with the Clipper Windpower turbines. As of May 17, 2008, all eight of the turbines at Steel Winds I had been remediated. See “-Suppliers” for more information. We anticipate this project will have an approximate 31% to 33% net capacity factor over 25 years. Assuming a 32% net capacity factor, the average annual electrical production is projected to be 56 GWh.

Development history. Steel Winds I was initially developed by an independent developer. In June 2007, we assumed control of the project, including final project design, permitting, land rights and construction and currently own 100% of the project, subject to a carried interest and earn-out we granted to the prior developer. Steel Winds I represents the first ever wind energy project built on a brownfield site, and successful development of the site required us to address a number of complex environmental concerns. The pre-existing infrastructure associated with the prior steel mill operations, including the substation, operations buildings and roadways, enhanced the economic feasibility of this wind energy project. In addition, the eight Clipper Windpower turbines in operation at Steel Winds I represent the first commercially produced LibertyTM turbines.

Land. Steel Winds I is located on land owned by Tecumseh Redevelopment Inc., a subsidiary of Mittal Steel USA. We sublease the project site under a sublease agreement effective as of June 1, 2007. The initial term of the sublease is 25 years and we may at our option extend the sublease for two additional 12-year periods. We have prepaid rent until 2011 under the sublease and thereafter will pay annual market-based rents.

Plant and interconnection overview. Steel Winds I employs eight LibertyTM wind turbines. See “-Suppliers” for more information on Clipper Windpower. Each turbine generates power that is collected by overhead lines, transmitted to the pre-existing on-site substation that was previously used as part of the steel mill’s operations and interconnected at the substation to Niagara Mohawk Power Corporation’s transmission system. Tennessee Valley Infrastructure Group constructed Steel Winds I and erected the turbines and Clipper Windpower commissioned the turbines.

Revenue. Wind energy generated at Steel Winds I is sold to Constellation New Energy pursuant to a three-year PPA executed in July 2006. Under the PPA, wind energy produced by Steel Winds I must be purchased by Constellation New Energy at a market rate based on Zone A of NYISO power prices until December 31, 2009. To hedge power price variability and enhance our financing options, we entered into a 9.5 year financial swap agreement with Morgan Stanley. Under the PPA, RECs earned by electrical production at Steel Winds I are sold to Constellation New Energy at a fixed rate and we receive capacity payments.

Financing. The approximately $35.0 million construction cost of Steel Winds I was financed by equity investments made by us. We executed an agreement for a $208.0 million tax equity financing related to a portfolio of projects that includes our Steel Winds I, Cohocton I and Prattsburgh I projects. Funding will occur in tranches upon commencement of commercial operations of each applicable project and the satisfaction of certain other conditions precedent.

Permitting and compliance. Steel Winds I is operating under several permits, and we believe the project is in material compliance with the terms of its permits.

Other. In 2007, the independent developer that was developing Steel Winds I entered into a Brownfield Site Cleanup Agreement with NYSDEC, pursuant to which he agreed to undertake certain environmental investigatory and remediation activities on the portion of the former steel mill site on which the Steel Winds I project is located. In December 2007, NYSDEC issued a Certificate of Completion to us confirming that we had completed the requirements of the agreement and achieved a cleanup level consistent with commercial and industrial use of the site. The issuance of the Certificate of Completion provides us with protection against liability to the State of New York for contamination at or emanating from the site, subject to certain conditions. The site is subject to certain ongoing environmental monitoring and maintenance conditions.

…Our Steel Winds I project is located on a former steel mill property that is considered to be a brownfield site. In 2007, the independent developer that was developing Steel Winds I entered into a Brownfield Site Cleanup Agreement with NYSDEC, pursuant to which he agreed to undertake certain environmental investigatory and remediation activities on the portion of the site on which the project is located. In December 2007, NYSDEC issued a Certificate of Completion to us confirming that we had completed the requirements of the agreement and achieved a cleanup level consistent with commercial and industrial use of the site. The issuance of the Certificate of Completion provides us with protection from cleanup liability to the State of New York, but not against liability from third-party claims. We are required to implement certain ongoing environmental monitoring and maintenance requirements at the site as part of our liability protection.

…Cohocton I

Cohocton I is a 125 MW wind energy project under construction on approximately 5,700 acres of land in the Town of Cohocton, Steuben County, New York. We expect Cohocton I to become operational in December 2008. We anticipate this project will have an approximate 27% to 29% net capacity factor over 25 years.

Development history. We began development of Cohocton I in 2003 with another independent wind developer and in 2004 we acquired the other developer’s interest in the project. We began construction on Cohocton I in August of 2007 with a projected completion date in the fourth quarter of 2008. Upon completion, Cohocton I will be the second largest wind energy project in New York.

Land. We have rights to occupy the land on which Cohocton I is situated through a combination of leases with over 30 private landowners and leases and permits from four governmental agencies. The initial terms of our leases range from 24 to 27 years, and we have an option to extend such leases for an additional 20 years. We pay market-based rents on these leases.

Plant and interconnection overview. Cohocton I will employ 50 Clipper Windpower Liberty ITM wind turbines that will be interconnected to the New York State Electric and Gas Corporation’s 230 kV Meyer/Hillside transmission line. We finalized an interconnection agreement covering Cohocton I with the New York State Electric and Gas Corporation for filing with FERC. The interconnection agreement lasts 25 years from the date of its execution with automatic one-year renewals thereafter. In connection with construction of Cohocton I we entered into a construction contract with M. A. Mortenson Company for the balance of plant construction, including turbine erection, and a construction contract with MSE Engineering for the construction of substations and a transmission line.

Revenue. Wind energy generated at Cohocton I will be sold directly into the New York power grid at market rates. To hedge power price variability and enhance our financing options, we entered into a ten-year power swap with Credit Suisse Energy LLC. In March 2007, we entered into two agreements with the New York State Energy Research and Development Authority (“NYSERDA”), that resulted in NYSERDA’s purchasing a portion of the RECs generated from Cohocton I. The contracts are effective upon commencement of commercial operations and extend for ten years thereafter. We expect to receive capacity payments at Cohocton I.

Financing. The approximately $265.0 million construction cost of Cohocton I is currently being financed by a combination of equity investments made by us and construction and turbine supply loans. We executed an agreement for a $208.0 million tax equity financing related to a portfolio of projects that includes our Steel Winds I, Cohocton I and Prattsburgh I projects. Funding will occur in tranches upon commencement of commercial operations of each applicable project and the satisfaction of certain other conditions precedent.

Permitting and compliance. In August 2007, the planning board of the town of Cohocton, New York issued the project a special use permit and site plan approval under the Town of Cohocton’s Windmill Local Law. The validity of the issuance of this permit has been challenged….

…Three Article 78 special proceedings appealing the issuance of the special use permits that were issued for the construction and operation of our Cohocton I project were instituted in the Supreme Court of the State of New York, Steuben County on August 31, 2007 by local individuals against the Town of Cohocton Planning Board, the project companies owning Cohocton I, First Wind Energy, LLC (formerly UPC Wind Management, LLC), an affiliate of the project companies owning Cohocton I, and several landowners. An Article 78 special proceeding is an expedited procedure whereby approvals from state and local bodies or officials can be challenged for alleged errors made in the course of issuing such approval. Each Article 78 proceeding alleges the same 12 causes of action, all of which relate to alleged procedural inadequacies or violations of law. In addition, two of the proceedings allege violations of noise regulations. In each of these proceedings, the petition seeks to invalidate either a portion of or our entire special use permit for Cohocton I and to enjoin construction of Cohocton I. None of the individuals has sought a restraining order or injunction to stop construction and there is no stay issued in connection with these proceedings. If the petitioners are successful in invalidating all or part of the special use permits, we would be required to re-apply for special use permits to allow us to construct and operate the project, which would result in construction delays and a delay in the commencement of commercial operations of Cohocton I. Because construction of Cohocton I is progressing to completion, we are preparing a motion to dismiss the Petitioners’ claims as moot.

A developing project is Prattsburgh I:

Prattsburgh I is a 54 MW wind energy project located on approximately 2,185 acres in the towns of Prattsburgh, Steuben County, New York and Italy, Yates County, New York. We anticipate this project will have an approximate 27% to 29% net capacity factor over 25 years. We own part of the land on which Prattsburgh I is situated, lease the turbine sites from 16 private landowners and have easement agreements with a majority of the landowners along the route of the underground collection line. Prattsburgh I will employ 36 GE Energy wind turbines that will be interconnected to the New York State Electric and Gas Corporation’s 115 kV transmission line in the town of Italy, New York. We entered into an interconnection agreement covering Prattsburgh I with New York State Electric and Gas Corporation in July 2004. The interconnection agreement is effective from the project’s commercial operations date until June 2024. In connection with construction of Prattsburgh I we expect to enter into a construction contract with M.A. Mortenson Company for the balance of plant construction and turbine erection and a construction contract with MSE Engineering for the substation design and construction. Our power sales and hedging activities are identical to Cohocton I. Similar to Cohocton I, in March 2007 we entered into an agreement with the NYSERDA that results in NYSERDA’s purchase of a portion of the RECs generated from Prattsburgh I. The contracts are effective upon commencement of commercial operations and extend for ten years thereafter. We expect to receive capacity payments at Prattsburgh I. The Steuben County Industrial Development Agency (“SCIDA”) was designated as the lead agent for the State Environmental Quality Review (“SEQR”) for Prattsburgh I. In July 2007, SCIDA issued positive findings under SEQR concluding that the project was approvable and had made adequate provision for minimizing and mitigating impacts to environmental and cultural resources. In addition, we received a special use permit from the town of Italy, New York for the construction of the Prattsburgh substation. Approval from the Army Corps under Section 404 of the Clean Water Act for minor impacts to wetlands was received on March 17, 2008. We expect to commence construction at Prattsburgh I in 2009. We currently have turbines under contract that we have allocated to Prattsburgh I.

…On April 21, 2008, the Town Board of Prattsburgh voted in favor of passing a resolution calling for a public hearing to consider the issue of condemnation of six easements necessary for the completion of construction of our electrical interconnection system for our Prattsburgh I project. Prattsburgh has commenced eminent domain proceedings against the landowners who hold these easements and is currently in the process of sending offer letters to the affected landowners. On July 17, 2008, an Order to Show Cause was filed in the Supreme Court of the State of New York, Steuben County by local individuals and a local opposition group against the Town Board of the Town of Prattsburgh and us seeking to annul the resolution relating to the eminent domain proceedings. The order alleges that the Town Supervisor (a Town Board member) had a conflict of interest when voting to authorize condemnation proceedings. In addition, on July 28, 2008, an appeal was filed by four of these landowners challenging the initial eminent domain proceeding.

Principal underwriters are Credit Suisse, Goldman, Sachs & Co., and JPMorgan. No date has been set for the prospective IPO.

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